Treasury yields fall after Fed's inflation gauge misses forecasts

U.S. government debt yields fell on Friday after the Federal Reserve’s preferred inflation metric fell short of expectations in the government’s first look at third-quarter economic activity.

The Commerce Department reported the U.S. economy grew at a 3.5 percent rate in the third quarter, faster than economists had expected. The government added that its personal consumption expenditures (PCE) index, a key measure of inflation, increased by 1.6 percent last quarter.

Bonds have rallied over the past few weeks as fears of rising inflation push traders into safer assets like government debt. Since the PCE index is the Federal Reserve’s preferred inflation gauge, any sign that the measure may be slowing could stall the central bank in its plan to continue to raise the overnight rate.

At 9:09 a.m. ET, the yield on the benchmark 10-year Treasury note had fallen 4 basis points to 3.094 percent, while the yield on the 30-year Treasury bond dipped 2 basis points to to 3.325 percent. Bond yields move inversely to prices.

“The key element is the inflation numbers,” said Scott Brown, chief economist at Raymond James. “It’s now back below the Fed’s 2 percent goal and may make them a little more gradual. They’ve been raising once a quarter, so now maybe it will become once every three meetings.”

Consumer spending, which account for more than two-thirds of economic activity, surged by 4 percent in the third quarter, the fastest pace since the fourth quarter of 2014, the government said.

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